Illinois Manufacturer's Purchase Credit
TAX ALERT |
UPDATE: The Manufacturer's Purchase Credit (MPC) filing deadline for calendar year 2013 is fast approaching. Manufacturers and graphics arts companies that made purchases during calendar year 2013 of machinery or equipment that qualifies for the MPC must file MPC Form ST-16 by June 30, 2014 to claim the credit. Failure to timely file MPC Form ST-16 will result in forfeiture of the credit. Further, businesses with accumulated credits must file MPC Form ST-17 by June 30, 2014 to substantiate the amount of credit used over the course of the 2013 calendar year. Failure to timely file MPC Form ST-17 will result in forfeiture of the accumulated credit even if no credit was used over the course of calendar year 2013. Additionally, if credit was used in calendar year 2013, failure to file MPC Form ST-17 will result in the assessment of use tax.
The MPC is due to expire on August 30, 2014, and it is unknown at this time what will happen with MPC earned as of that date. Legislation has been introduced to extend the credit through August 30, 2019, and is currently pending in the Illinois House Rules Committee. However, passage of this legislation is uncertain at this time, and businesses should consider the potential impact if an extender is not passed.
On July 31, 2009, Illinois Governor Pat Quinn signed into law SB 1691 (Public Act 096-0116), which extended the Manufacturer's Purchase Credit (MPC) through August 30, 2014. The MPC, which is available to manufacturers and graphics arts companies on purchases of certain machinery and equipment, must be claimed by filing MPC Form ST-16, Annual Report of Manufacturer's Purchase Credit Earned, by June 30 of the year following the calendar year in which the qualifying machinery and equipment was purchased. Additionally, accumulated credits must be maintained by filing MPC Form ST-17, Annual Report of Manufacturer's Purchase Credit Used, by June 30 of each year. Failure to file either form will result in loss of the credit.
How to earn MPC
The credit is earned by purchasing manufacturing or graphic arts machinery and equipment that qualify for an exemption from sales tax. Additionally, some tangible personal property used in the repair and maintenance of qualifying machinery and equipment may qualify for the credit. The credit is equal to 50 percent of the state sales tax rate of 6.25 percent that would have applied to the purchase of the exempt equipment.
How to use MPC
The credit can be used on the purchase of production-related tangible personal property to offset the state rate of 6.25 percent. The credit cannot be applied against local sales tax. To use the credit on purchases where the vendor collects sales tax, the vendor must be provided with Form ST-16-C. To use the credit on out-of-state purchases where use tax is due, the credit can be reported on Line 16a of Form ST-1.
The credit expires on the last day of the second calendar year following the year in which the credit was earned.
A manufacturer that purchases exempt manufacturing machinery for $1,000 calculates MPC earned as follows:
|IL state sales and use tax rate||x 6.25%|
|Tax due||$ 62.50|
|Credit rate||x 50%|
The manufacturer can then use the MPC earned to reduce Illinois sales or use tax on purchases of production-related tangible personal property.
Production-related tangible personal property includes the following:
- All property used or consumed in a manufacturing facility, including property used or consumed in a pre-production or post-production activity related to material handling, receiving, quality control, inventory control, storage, staging and packing for shipping or transport
- Property used or consumed in research and development (R&D) activities
- Property purchased for incorporation into real estate within a manufacturing or graphic arts facility
- Fuels, coolants, solvents, oils, lubricants, cleaners, adhesives and other supplies and consumables
- Hand tools, protective apparel and fire and safety equipment
Production-related tangible personal property does not include property used, within or without a manufacturing facility, in sales, purchasing, accounting, fiscal management, marketing, personnel recruitment or selection, or landscaping.
Sales/use tax overpayment and MPC review
Taxpayers should consider a comprehensive review of purchases to identify and quantify the applicable MPC and any overpayments of sales tax.
The information contained herein is general in nature and based on authorities that are subject to change. RSM LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
This article represents the views of the author or authors only, and does not necessarily represent the views or professional advice of RSM.